NFP Preview: Prospects for further Dow Jones gains after the election

The Dow Jones gained 3% yesterday. That was its strongest post-midterm rally in 44 years, and futures indicate more upside today.

A blue sweep in the U.S. midterm elections delivered the Dow's biggest daily percentage rise since April 2025. Treasury yields have declined, helped by reduced uncertainty, the prospect of political gridlock slowing spending and a sharp 10% fall in oil prices. With Congress under Democratic control, the Federal Reserve could face less pressure, giving policymakers more freedom to act independently.

Continued selling in technology shares contrasts with the Dow's relative strength. Democrats have opposed AI, or at least advocated a more gradual approach than the rapid rollout currently taking place. Their position could add pressure to an already vulnerable AI trade.

Capital is consequently rotating from tech into the Dow. Technology shares are lagging the wider market, and Nasdaq futures have fallen 0.8%.

65,000 jobs: expectations for the NFP report

Tomorrow brings the Dow Jones its next test: the nonfarm payroll report. Expectations favour a recovery from September's weak result, consistent with a broadly steady labour market.

For October, forecasts put U.S. job creation at 65,000, up from a sluggish 29,000 in September. The September result was substantially below the 130,000 forecast.

Wage growth is projected to quicken slightly, but not to a pace that would increase inflationary pressure. Unemployment is forecast to stay unchanged, following September's small rise to 4.2%.

A small upside surprise in NFP is indicated by the leading data. ADP recorded 86,000 additional private payroll jobs, more than expected. Employment in the U.S. ISM Services PMI strengthened, with the component reaching 51.4 after September's 50.1. Manufacturing offered a contrast: the ISM Manufacturing Employment Index edged down from 52.7 in September to 52.4 in October. U.S. job openings increased sharply in September; layoffs, meanwhile, are at their lowest in 1.5 years.

Markets currently place an 80% probability on the Federal Reserve raising rates by 25 basis points next month as these figures arrive.

100,000 jobs and above: potential NFP market reactions

An upside surprise in U.S. nonfarm payrolls could reinforce expectations for a December rate hike. Higher Treasury yields and pressure on stock indices, including the Dow Jones, could follow. A report showing more than 100,000 additional jobs and unemployment at 4.1% would be strong enough to potentially trigger a market response and lift expectations for a more hawkish Fed next year.

The scope for weak payroll data to substantially change December rate hike expectations appears limited. Within its dual mandate, the Fed has explicitly prioritised its concern over inflation, which remains well above the 2% target. Kevin Warsh has also expressed the view that unemployment and job growth are consistent with the Fed's mandate.

53,600: Dow Jones technical outlook after the breakout

The descending channel no longer contains the Dow Jones, following an upside breakout. A recent recovery began at 51,350, where the falling channel's upper boundary provided support. The advance then cleared the 50 EMA and key resistance, taking the index to 53,600. With the RSI above 50, momentum also backs the positive outlook.

For buyers, the next test is 53,800, the September high and a resistance level. Clearing it would put 54,750 and fresh records in view.

The first downside support is the October high at 53,000. A breach would open the way towards 52,200 at the 50 EMA, then 51,300, yesterday's low. Further weakness would bring the 200 EMA at 50,800 into view.